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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: Stock Farmer who wrote (114603)	2/27/2002 12:51:07 PM
From: rkral	Read Replies (3) \| Respond to of 152472

OT ... John, a well presented post as usual. I believe you are incorrect in two areas, however, because of the following paragraph: Even if it did turn out to be tax advantageous, there is the effect of tying up one's capital, time value of that capital, and assuming risk of downside depreciation. There are a lot of folks throughout tech-land sitting on shares exercised early that now aren't even worth the taxes paid. First, imho the time value of capital is not a consideration in your comparison since the only capital involved was created by the exercise of options. Secondly, imo sitting on some shares is better than not having exercised any options, should the stock fall below its price on the exercise date. In your comparison, if the price of the stock falls all the way to the exercise price, the party that exercised at least has 520 shares worth $5200. The party that did not exercise has nothing. As you said, it's important to do the math. <g> Regards, Ron P.S. In a previous post, I said you had me 99.9% convinced (an oxymoron?) of your evaluation method of the costs of employee stock options. You were equating the company's position to that of an uncovered (naked) call writer (my words, not yours). Now after having studied the situation more, I strongly disagree with you. I would like to try to convince you that you are wrong. Do you think the thread can stand any more of this topic? Let me know if you would rather use PM.

To: Stock Farmer who wrote (114603)	2/27/2002 1:18:19 PM
From: carranza2	Respond to of 152472

I'm not sure that your calculations are correct: First, as engineer suggests, AMT is a factor. I don't know much about Alternative Minimum Tax, but I suspect that it is a serious consideration which probably skews everything we have discussed. If one ignores AMT, I still have a problem with your calculation. First, it assumes that the early exerciser of an option will use the shares he has bought to pay off his tax liability. If I made my investment decision based on the premise that the shares would go to $200, I certainly wouldn't use the shares I just bought to pay my taxes. I'd get money from elsewhere in order to retain the full number of shares to which I'm entitled. Instead of 520 shares, I'd keep the full 1000. Moreover, as an early exerciser, I would be paying cap. gains at 20% on a $50 basis, or $30 per share, (20% of $150), as well as $14 in income taxes when I exercised early ($40 x 35%) for a total tax liability of $44 dollars per share when I sold at $200. Compare to the late exerciser who is is paying 35% income taxes on $190 if he sells at $200, or $66.50 in income taxes per share. The early exerciser seems to be doing better than the late exerciser to the tune of an extra $26.50 per share. Anyway, this is theoretical only as AMT probably smooths it all out by getting rid of the distinction between cap. gains and income taxes.